Locations, locations, locations … It's well known banks have too many of them.

Bankers are looking at every possible way to make their branch networks more efficient. The responses range from closing branches, to firing branch workers, to sale-leaseback transactions, to temporary "pop-up" branches rolled out by PNC Financial Services Group (PNC).

Branch sales have been brisk lately, too, but heavy selling of unneeded or too-big branches can produce fire-sale prices.

Some banks have found another creative option: carving out branches and subleasing the new real estate to generate revenue.

First Niagara Financial Group (FNFG), in Buffalo, N.Y., is among those to conclude that many of its branches are too cavernous for the trickle of customers that flow into them. It has turned to several remedies, including subleasing.

"We have facilities where we are co-located with lawyers, accountants, dental practices" in some branches in Connecticut, says Scott Fisher, managing director of retail channels at First Niagara.

"As you see overall customer traffic trends change, there are definitely opportunities to have co-location strategies, as well as downsizing square footage," Fisher says.

Industry figures illustrate how branches have fallen out of favor — the number of branch visits has declined, as have the numbers of teller transactions and checks written, says David Kerstein, president of Peak Performance Consulting Group in Austin, Texas.

"Most banks [that] have grown through acquisition have inherited oversized former headquarters locations which don't fit current needs," Kerstein says.

Many community banks still do business in facilities that were built in a different generation and have become obsolete, says Bill Yeomans, president of Brookline Branch Services in Syracuse, N.Y.

"Some of these branches were built in the 1970s, but they no longer have the mortgage department on the second floor," Yeomans says. "It's more real estate than they need, and it becomes an operational headache."

Subleasing is a good option to consider, say Kerstein, Yeomans and others. But one expert warned that the associated costs can mount and cut into the benefits.

Subleasing unused space can create a new source of revenue for banks, says Bill Simmons, a client services director at Pitney Bowes Software. But banks shouldn't spend too much on the conversion of unused real estate just to rent it out, he says.

"It comes down to the incremental cost of putting up a wall and subleasing it out," Simmons says. "I personally think banks would be better served by using their space for other kinds of sales functions."

Simmons advises banks against selling branches at a steep discount. They can serve as a "billboard" for customers who still prefer to do business at a branch, he says.

Even if a branch is too large, most new customers are obtained through branches, says Bob Koncerak, chief financial officer of $600 million-asset Altrust Financial Services (ATFS) in Cullman, Ala.

"If the branch is located in a high net worth zip code, each of its customers may be providing the bank with healthy levels of stable deposits," Koncerak says.

Many bank branches are located in high-profile areas, which can also boost their appeal in a sublease to a retail tenant, Koncerak says.

"Banks target branch placement in areas of high traffic, where one would assume lease rates are comparatively high," Koncerak says.

The $37.1 billion-asset First Niagara announced Tuesday that it's eliminating 170 administrative employees across its branch network and devote more of branch employees to jobs that directly serve customers.

First Niagara has made investments in its Lockport, N.Y., call center to handle tasks that had been the domain of branches. Over the past 18 months, First Niagara has doubled the size of its call center staff that handles outgoing calls to customers, Fisher says.

Another result of the branch downsizing has been an increase in training of retained employees, says Mark Rendulic, executive vice president of retail banking at First Niagara.

"We continue to grow the number of revenue producers that we have out in our network," Rendulic says.

After the layoffs are completed, First Niagara "will have a [lower] headcount," but the bank "will have 200 more people capable of making loans," Fisher says.

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